Ukrainian finance ministry proposes imposing taxes of interest rates of deposits of over UAH 100,000

The Finance Ministry of Ukraine has proposed increasing the limit for deposits, on which interest rates taxes will be imposed, from UAH 50,000 to UAH 100,000.

"It is proposed to introduce taxation of incomes of individuals for only 1.5% of holders of large deposits, which size exceeds UAH 100,000, which share of total banking deposits is 70%, that is for rich people," reads a report of the ministry issued on Thursday.

The ministry said that if the total sum of deposits does not exceed UAH 100,000 at one financial institution as of late reporting month, the taxes are not imposed on interest rates.

The ministry said that the social justice principle, which means imposing of taxes and duties in line with solvency of taxpayers, is stipulated in the Tax Code, and the practice of taxation of incomes from deposits exists in many countries.

In particular, in Lithuania and Japan they a 15% tax is imposed, in Poland – 19%, Germany – 25%, Switzerland – 35% and the Netherlands – from 37% to 52%.

"It's unfair to continue the practice when taxes are imposed on wages in education, healthcare, culture and agriculture on the general conditions, while incomes that rich depositors receive are exempted from taxation,"

As reported, on March 19, 2014, Prime Minister Arseniy Yatseniuk criticized the idea of taxing interest on all bank accounts, suggesting that taxes should only be levied on deposits exceeding UAH 50,000.

"Ninety percent of Ukrainians have deposits under UAH 50,000. The 10% who are rich should share with the country and society," the prime minister said.

He said that he personally received UAH 614,000 of income from deposits and he did not pay any kopeck of taxes to the budget.

According to the Tax Code, dividends received by individuals are taxed at the rate of 5% (earlier 15%), while interest rates from deposits will be taxed at the same rate – 5% from January 1, 2015.

According to Interfax-Ukraine's information, the finance ministry proposes that taxation of interest rates from banking deposits is introduced from April 1, 2014 at the rates of 15-17%, which are general rates of taxation of incomes of individuals: 15% for persons with monthly income up to 10 minimum wages and 17% - over 10 minimum wages.

According to the National Bank of Ukraine (NBU), as of late February deposits of individuals in hryvnias amounted to UAH 233.5 billion, a decline of 7.6% in a month, and by 7.9% since early 2014. Deposits in foreign currency totaled $21.2 billion, a decline of 6.3% in a month and by 7.8% since early 2014.

Average weighted deposit rate in hryvnias in February grew from 11.67% to 14.14% per annum and in foreign currency it grew from 5.92% to 6.52%.

Taking into account the information from the Finance Ministry that the share of over UAH 100,000 deposits is 70% of total deposits, the proposed taxation of interest rates could bring over UAH 5 billion to the budget every year (if the outflow of deposits from the banking system stops).